We have shown that parties might create security interests even if they are inefficient. The pending question is whether there are many cases in which security interests actually are inefficient. In this Section, we present empirical evidence that indicates that this is the case.
The Persistence of Unsecured Debt
Although there is very little data on the extent of secured lending in the U.S. economy, there is no question that it is an important form of financing for many companies. Almost 30% of the dollar volume of commercial bank loans is secured. Of course, the same data also show that a substantial amount of debt (including 70% of the dollar volume of commercial bank loans) is not secured. Indeed, not only are many loans unsecured, but many companies borrow on an exclusively unsecured basis.

It is well known, for example, that large companies rarely issue secured debt. And, even among small businesses—the type of firms most likely to rely on secured financing—a substantial percentage borrow exclusively on an unsecured basis: almost 50% of small businesses that borrow from banks do not provide collateral for their loans. Almost 40% of small companies do not rely on any secured credit financing whatsoever.
The failure of many loan transactions to incorporate security interests provides evidence that the use of security interests can entail significant costs. As we saw in Section В above, the use of a security interest allows a borrower to transfer bankruptcy value from nonadjusting creditors.

Thus the failure to use a security interest implies that the efficiency costs of the security interest that would be borne by the borrower and the sophisticated creditor are greater than the efficiency benefits they would enjoy from the security interest plus the expected transfer of bankruptcy value made possible by the current priority regime. This, in turn, suggests that the use of a security interest in these cases would be inefficient. instant payday loans